Langton Capital – 2018-01-29 – DPP, EasyHotel, Conviviality, Prezzo, M&C, costs & other:
DPP, EasyHotel, Conviviality, Prezzo, M&C, costs & other:
A DAY IN THE LIFE:
I’m getting confused by all this misspeaking. I mean comments are usually either right or wrong. They may be ‘differently right’ in a complicated world, of course, but would you trust certain people’s judgment in that sort of environment.
Things may be right from one point of view whilst being wrong from another. And that could be fair if it was a 50:50 call but, if you’re the only one calling it right and the rest of the world call you wrong, then aren’t you wrong almost by definition?
And, while I’m at it, I think that superlatives are getting a bit overused at present as well. There could be a lot of verys but there’s only one most etc. And, the last time I checked, mostest wasn’t a word and mostestest certainly wasn’t. On to the news:
• Langton has put together a compendium of around 3 dozen 60-seconds pieces (c200 words or so each) for distribution at £200 plus VAT, free to clients. Please let us know if you would like a copy.
DP POLAND – FY TRADING UPDATE:
• 55-strong DP Poland has updated on 2017 trading saying system sales rose 51% with LfL sales +17% and 75% of orders online
• DPP reports Q4 was its 17th quarter of double digit LfL growth in System Sales
• DPP reports store numbers last year rose from 35 to 54 stores, with 55 stores open to date. Its ‘second commissary in Łodz is fully operational and performing well’
• DPP CEO Peter Shaw reports ‘2017 delivered significant growth in System Sales, through a combination of robust like-for-likes and 19 store openings.’ Mr Shaw says ‘while we experienced increased pressures in cost of sale, both labour and food, we expect these pressures to reduce through 2018.’
• DPP reports ‘Poland’s delivery market is expanding and we are taking a lead in that expansion, through great product, service and price, supported by a strong marketing programme and store roll-out.’
• The group says ‘we commenced national television advertising in January 2018 and early results are encouraging.’
PUB, RESTAURANT & DRINK PRODUCERS:
• Conviviality has reported H1 numbers saying revenue rose 9.2% to £836.3m and adjusted PBT fell by 1.6% to £12.3m.
• Re current trading, Conviviality says there was an ‘8.4% increase in Group sales during November and December (9 weeks) compared with the same period last year.’
• Conviviality CEO Dianne Hunter reports ‘we have made deliberate choices to successfully grow market share and enhance the quality of future earnings by agreeing long term contracts with our larger customers and securing new national account customers.’ Ms Hunter concludes ‘as previously highlighted, cost initiatives for the second half of the current financial year provide confidence for both achieving current year Board expectations, as well as the Group’s longer-term performance.’
• EI Group Friday bought back 180k of its own shares for cancellation at 144.5p per share.
• Moody’s reports that Brown-Forman Corporation’s announcement that it was to distribute a $480m special dividend on the back of the Trump tax changes is credit negative. Moody’s says ‘the combined cash outflows for these items exceed, by more than $400 million, the free cash flow we expected Brown-Forman to realize in fiscal 2018, which ends in April.’
• Prezzo’s private equity owners TPG have appointed a specialist turnaround advisors at Alix Partners to help the Italian restaurant chain ahead of a potential financial restructuring, per The Sunday Times. Prezzo is the latest mid-market casual diner to show signs of distress, following the likes of Byron and Jamie’s Italian, as the sector absorbs rising labour costs, a business rates rise, food inflation, and increasing competition. TPG bought c300-strong Prezzo in 2015 for £304m from stock market investors and the Kaye family, who established the business in 2000, and funded a 50-store roll out with debt.
• The latest consumer confidence tracker from Deloitte shows that UK consumer confidence remained flat in the fourth quarter of 2017, making it the first time there was not a fall in Q4 since the tracker began in 2011. Ian Stewart, chief economist at Deloitte, said: Despite a fierce squeeze in spending power last year, consumers went into 2018 in pretty good spirits. Low interest rates and plummeting unemployment mean that it’s not all been bad news for consumers. With record levels of job vacancies and an economy that continues to grow we would expect wage growth to edge higher this year as inflation eases. The worst of the squeeze on incomes is probably behind us.’
• Low- and no-alcohol is now a fast-growing lifestyle choice, according to analysis from Kantar Worldpanel, which shows that sales of beer and cider with less than 1.2% alcohol grew by nearly 30% last year. Budweiser launched its alcohol-free beer in the UK in November, Heineken unveiled a no alcohol version of its beer last year, while Tesco introduced a choice of five wines with less than 0.5% alcohol before Christmas.
• The Royal Society for Public Health has said all alcoholic labelling should show ‘mandatory warnings’ to tackle the ‘awareness vacuum’ regarding drinking guidelines and health risks. The RSPH proposed using traffic light colour coding – such as those used on other food items in the UK to indicate levels of fat, salt and sugar – and suggested other information such as the government’s 14 unit guideline, the link between alcohol and cancer and drink driving warnings.
Cushman & Wakefield partner Thomas Rose thinks has told MCA that there is ‘massive’ potential for food halls in the UK.
• Prezzo is understood to be suffering like-for-like sales declines of 6%-7%, with performance at its struggling Chimichanga brand even worse. According to a report just before Christmas by Debtwire, the c300-strong company is on target to breach its year-end debt covenants.
• Market Taverns has bought The Lady Ottoline pub just off Gray’s Inn Road in Clerkenwell, taking the group’s total of London pubs to six. Market Taverns’ Steve Welsh commented: ‘We are delighted to have secured this excellent pub; it is a great fit for our business. We are now on site carrying out repairs and redecoration; and expect to be open again in mid February. We are pleased to have found a couple of the old key members of staff including the Head Chef Tom Haste and we are looking forward to working with them.’
• Luxury goods group LVMH full year revenues increased by 13% to €42.6bn and profit from recurring operations rose 18% to €8.3bn in 2017 as the business hailed ‘another record year’.
• Champagne has lowered the regions provisional production figures to 308m bottles from a predicted 312m, representing only a 0.5% increase on last year.
• Cask Marque is to introduce new cellar audits that will see if pubs are using the best practices to improve beer quality and yields.
• Elite Coffee, the Paul Harbottle-chained Starbucks franchisee, has announced it intends to open 21 sites by 2021, to be funded by a £1.1m crowdfunding raise.
• The number of listed companies reporting profit warnings reached a two-year high last year. Research by EY found that 81 profit warnings were released in Q4 2017, with support services and retail businesses feeling under the greatest pressure.
EASYHOTEL TRADING UPDATE:
• EasyHotel updates on trading saying ‘the strong trading experienced in the prior year across the Group’s owned and franchised hotel estates has continued, with the Group’s performance since the financial year ended 30 September 2017 in line with the Board’s expectations.’
• EZH reports ‘the Group’s owned hotels have continued to significantly outperform both their competitive set and the wider UK hotel market.’
• EZH has opened in Liverpool & Newcastle since its year end. It says ‘both hotels are trading in line with the strong performance of the hotels opened during the last financial year.’ EZH adds ‘the Group’s franchised hotels have also continued to trade strongly, particularly in Continental Europe.’
• EZH reports ‘as previously announced the Board plans to retain a 92-room hotel at Old Street, refurbishing the hotel in line with our new brand format. Planning permission is being sought to add an additional floor to the building and increase the Net Internal Area of the building, for use as office accommodation, which should maximise value from this freehold property.’
• EZH reports Cardiff will open in 2019 as will its recently-announced Milton Keynes site. Other new hotels projects currently under construction include Leeds (93 rooms), Sheffield (131 rooms), Ipswich (89 rooms) and Barcelona (204 rooms) which are all expected to open in 2018.
• EZH has franchised hotels in development in Holland, Germany, Belfast (81 rooms), Reading (54 rooms) and Bur Dubai (300 rooms) which are all planned to open in 2018. Developments are also underway ‘in Istanbul (300 rooms), Iran (500 rooms) and Sri Lanka (200 rooms) for beyond 2018 which will, on completion, enhance its position as the super budget hotel brand of scale in the UK and Middle East.’
• EZH CEO Guy Parsons reports ‘we have been pleased with the Group’s performance to date in the new financial year, reflecting the growing strength of the easyHotel brand.’
• EZH says ‘the like-for-like revenue growth trends across both our owned and franchised estates in the prior financial year have continued. Whilst we are very mindful of the wider UK macro-economic uncertainty and the impact this continues have on consumer confidence, we are encouraged by the strong outperformance of our hotels, both in the UK and overseas.’
• Regarding financing, EZH reports ‘as previously highlighted, we continue to see a good number of attractive potential development opportunities to further accelerate the growth of our owned hotels. These are both larger and more numerous than we had originally anticipated. It is for this reason that we are currently considering our long-term financing options, including raising new debt and equity capital, to position the Group to take advantage of these opportunities and underpin easyHotel’s long term objective to be the market leader in super-budget sleep.’
• Langton comment: EZH has identified a profitable niche into which it is expanding rapidly. Its brand is identifiable and trusted and growth prospects seem good. The financing, which was first mentioned at the group’s final results on 6 December, is yet to be finalised.
• EZH last raised money at a premium to its then share price. The 100p raising brought new shareholders into the company. The nature of the current fund-raising (debt and/or equity, price etc.) has yet to be announced and we await developments with interest.
HOLIDAYS & LEISURE TRAVEL:
• CDL announced on Friday that its offer for Millennium & Copthorne had been accepted by 47.1% of eligible shareholders and had lapsed. CDL says ‘it is no longer capable of further acceptance and any accepting Offeree Shareholders cease to be bound by their acceptances. Acceptances of the Final Offer will be returned to acceptors as soon as practicable.’
• CDL says that it ‘remains committed to maintaining its controlling shareholding in the Offeree, supporting the Offeree’s strategy as a hotel owner and operator and the extensive capital expenditure program required to improve performance.’
• The Independent Committee of Millennium & Copthorne says that it ‘believed that the Final Offer was fair and reasonable after assessing a number of valuation methodologies and recommended shareholders accept it for the reasons set out in that letter.’ It says ‘the Independent Directors will continue to engage with all shareholders and, whilst being mindful of the views expressed during the process, work to tackle the challenges facing the Company and drive the business forward to deliver value for the benefit of all shareholders.’ It concludes ‘shareholders have now spoken, we respect the result and will continue to work on behalf of all shareholders to deliver long-term value.’
• Consumers are reducing their holiday taking and expect to spend less in 2018 than last year on holidays, according to Sainsbury’s Bank Travel Insurance study. People plan to take fewer overseas holidays in 2018 with just over six out of ten (61%) adults in the UK intending to take a foreign trip, down from 66% 12 months ago. This is giving a rise to increased numbers of UK city break bookings – 38% against 29% of those asked 12 months ago.
• Hotstats data shows December was a lacklustre end to a positive year for UK hotels, with falls across all key metrics. Despite recording a 1.0% increase in achieved average room rate in December, to £116.43, hotels in the UK suffered a 0.8-percentage point decline in room occupancy, to 70.3%, which forced a 0.1% decline in RevPAR, to £81.90.
• The American Express Global Business Travel Forecast 2018 shows moderate price increases are expected across air, hotel and ground transportation. Demand should instead be driven by a steadily improving global economy and growing confidence.
• The National Audit Office will now investigate the government’s handling of the £3.3bn East Coast Main Line rail service, where two operating firms have opted to cut short their contracts. Virgin and Stagecoach’s decision could eventually cost the taxpayer billions of pounds, according to former chair of the National Infrastructure Commission, Lord Adonis.
• Shares in Wynn Macau dropped 6.3% in Hong Kong on Monday following allegations that Steve Wynn, founder and CEO of parent Wynn Resorts, had sexually harassed female colleagues at its casinos. The Wall Street Journal reported accounts from dozens of people who worked at the company’s properties and Wynn Resorts has launched an investigation into the claims. Mr Wynn said in statement: ‘The idea that I ever assaulted any woman is preposterous.’
• Spotify is reported to be looking to float on the cheap. The Times reports it is ‘preparing to become the first company to attempt a “direct listing” on the NYSE. If all goes to plan, it will cut its fees dramatically.’
FINANCE & MARKETS:
• UK GDP rose by a higher-than-expected 0.5% in Q4 last year. The figure is the lowest Q4 growth in 5yrs.
• The ONS said the growth was “slower and more uneven” than it had been in the past.
• The NIESR says growth was ‘slightly faster than the 0.4 per cent outturn in the third quarter. The economy expanded by 1.8 per cent in 2017.’ It says ‘economic growth picked up in the second half of 2017 after weak growth in the first six months. The recovery was driven by both the manufacturing and the dominant service sectors, supported by a buoyant global economy, while construction output continued to lag. Looking ahead, we expect growth to remain close to current levels as the economy benefits from the tailwinds of global growth on the one hand and the headwind of Brexit-related uncertainty on the other.’
• Donald Trump has attacked “predatory” trade practices.
• US economic growth slowed to an annualised 2.6% in Q4.
• The BBC says Labour’s John McDonnell has called on the UK’s accountancy firms to work to maximise the amount of tax their clients pay.
• The number of individuals becoming insolvent rose by 9.4% in 2017 to 99.2k people.
• Sterling down vs dollar at $1.4133
• Pound lower vs Euro at €1.1383
• Oil up at $70.44
• UK 10yr gilt yield up 4bps at 1.45%
• World markets: UK, Europe & US up on Friday. Far East mostly down in Monday trade
• Brexit, government etc.:
o David Davis has said there is no difference between his view & those of chancellor Philip Hammond
o Bank governor Mark Carney has said that a “deeper relationship” with Europe will benefit the UK economy. He says ‘the economy is doing not as well as we expected it to prior to the referendum.’ Growth is around 1% behind expectations. Mr Carney says ‘what it works out to is tens of billions of pounds lower economic activity. Investment has picked up a bit but it hasn’t picked up anyways to the same extent as internationally.’
o The UK on Friday demanded the right to strike its own trade deals during its post-Brexit transition period
o Talks between the EU and the UK are thought likely to take place fortnightly. A deal may have to be struck by October in order to be ready for ratification before the UK leaves the EU in March next year.
o The Sunday Times says 3 former cabinet ministers have been filmed trying to make money personally out of Brexit
o Defence secretary Gavin Williamson is said to have leaked information to distract attention from an extra-marital ‘flirtation’
o Donald Trump has said the EU (including the UK at this stage) has a “very unfair” trade policy toward the US
o Times reports Philip Hammond is facing a coordinated effort to discredit him before any discussion of the economic impact of leaving the EU is revealed
• Langton is between offices. Please communicate via email. MIFID II is now in operation.
• Later tweets: SBUX opened 700 new stores globally in Q1 alone. It has c28k worldwide. Will open 2.3k this year. Numbers still disappointed & shares fell
• Reuters reports that ‘British restaurant chain Prezzo is in talks with its lenders’. Bond prices fell. Prezzo currently 50% off food
• EasyHotel acquires hotel in Milton Keynes. Says recent openings trading well. Still considering its funding options
• BDO High Street Tracker shows LfL sales down 2.5% (week 21 Jan) on top of a 1.3% fall last year. Things on the High Street are a changin’
• Nutella riots sweep France. They are ‘like animals’ say police. Time to stock up on your Marmite?
• Discounting lives in crazy town. 50% (or Bogof or 2-4-1) off at Prezzo, Frankie & Benny’s, Café Rouge, Chiquito, Bella Italia, Las Iguanas
• Delivery caught up in discounting. Papa J half price, Domino’s 35% off. Just Eat £4 off each £15 order.
• M&B brands discounting. O’Neill’s 40% off, Harvester, All Bar One 33% off. Lower margin Brown’s 25% & Toby 20% off
• Big in discounting, M&B brands, Restaurant Group brands, some GNK units (Loch Fyne), Casual Dining Group & others
START THE DAY WITH A SONG:
Last Friday’s song was On Hold by The XX. Kicking off the last week of January, who sang:
“So, what do you do?,
Oh yeah, I wait tables too.
No, I haven’t heard your band,
Cause you guys are pretty new.”
RETAIL NEWS WITH NICK BUBB:
• Saturday Press: The Saturday papers were slightly thin pickings in terms of Retail news, although the Daily Mail flagged that the embattled Arcadia is to cut hundreds of management jobs in its Topshop and Topman chains, the Guardian noted that John Lewis is to extend its personal shopper service for men to another 8 stores (following the success of the trial in Oxford) and the Times highlighted that the beleaguered Steinhoff claims to have largely addressed its short term liquidity problems. And the stockmarket report in the Daily Mail noted an RBC report that claimed that ASOS and Ocado could be takeover targets. But there were a couple of meaty articles in the FT: in the main paper there was big feature article about the push by Amazon into clothing (“Amazon dresses for success in fashion arena”), noting that the big fashion brands are not sure how to react to Amazon’s expansion into
• Sunday Press: The Sunday papers were also pretty thin, but the Sunday Telegraph followed up on the news that Richemont has bid to take full control of Yoox Net-a-Porter with an article about the expansion of Luxury retailing into Online: “Luxury finds holy grail: being “Amazon proof””. And the main Business story in the Mail on Sunday was that the influential Treasury Select Committee has written to the Chancellor demanding urgent Business Rate reform as the High Street falters. The Mail on Sunday also noted the improved results announced by the Ann Summers chain for y/e June and it had a feature article on Tim Steiner and Ocado, flagging that although “he was seen at the sleazy Presidents Club bash” it was still a good week for the Ocado boss, as the market value of the business rose by £650m after its latest deal in Canada…
• Conviviality: Today’s interims (for the 6 months to end Oct) and update from Conviviality (which now describes itself, punchily, as “the UK’s leading independent wholesaler and distributor of alcohol and impulse, serving consumers through its franchised retail outlets and through hospitality and food service”) contain some mixed messages. First half revenue was up 9.2% to £836m, but gross margin was down 30bps to 12.5%, “due to increased sales to large national account customers” and profits were flat, although this is said to reflect the phasing of cost synergies into the second half of the year. And Conviviality trumpet the news that “security of future earnings improved as the Group’s two largest customers (Stonegate Pubs and Wetherspoon’s) entered into new long term agreements demonstrating further confidence in the group’s strategy”, with CEO Diana Hunter explaining that “We have
• News Flow This Week: The pace of news is slowing down now, but, with the end of the month coming up fast on the horizon, Wednesday brings the monthly GFK Consumer Confidence index, the ScS trading update and the Joules interims, whilst on Thursday we get the Apple Q1 and the Amazon Q4 out in the US. And Friday is Groundhog Day!